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Remittances, Liquidity Constraints and Human Capital Investments in Ecuador

  • Calero, Carla

    ()

    (Inter-American Development Bank)

  • Bedi, Arjun S.

    ()

    (ISS, Erasmus University Rotterdam)

  • Sparrow, Robert

    ()

    (Australian National University)

Over the last decade Ecuador has experienced a strong increase in financial transfers from migrated workers, amounting to 6.4 percent of GDP and 31.5 percent of total exports of goods and services in 2005. This paper investigates how remittances via trans-national networks affect human capital investments through relaxing resource constraints and facilitate households in consumption smoothing by reducing vulnerability to economic shocks. In particular, we explore the effects of remittances on school enrolment and child work in Ecuador. Identification relies on instrumental variables, exploiting information on source countries of remittances and regional variation in the availability of bank offices that function as formal channels for sending remittances. Our results show that remittances increase school enrolment and decrease incidence of child work, especially for girls and in rural areas. Furthermore, we find that aggregate shocks are associated with increased work activities, while remittances are used to finance education when households are faced with these shocks. This suggests that liquidity constraints and vulnerability to covariate risk are especially relevant in rural areas, as it affects household’s investments in human capital of school age children. In this context both child labour supply and transnational remittances serve as coping mechanisms.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3358.

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Length: 37 pages
Date of creation: Feb 2008
Date of revision:
Publication status: published in: World Development, 2009, 37 (6), 1143-1154
Handle: RePEc:iza:izadps:dp3358
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  11. Dehejia, Rajeev H & Gatti, Roberta, 2005. "Child Labor: The Role of Financial Development and Income Variability across Countries," Economic Development and Cultural Change, University of Chicago Press, vol. 53(4), pages 913-32, July.
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  13. Morduch, Jonathan, 1999. "Between the State and the Market: Can Informal Insurance Patch the Safety Net?," World Bank Research Observer, World Bank Group, vol. 14(2), pages 187-207, August.
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  18. Sarah Dolfin & Garance Genicot, 2010. "What Do Networks Do? The Role of Networks on Migration and "Coyote" Use," Review of Development Economics, Wiley Blackwell, vol. 14(2), pages 343-359, 05.
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  20. Dehejia, Rajeev H. & Gatti, Roberta, 2002. "Child labor : the role of income variability and access to credit in a cross-section of countries," Policy Research Working Paper Series 2767, The World Bank.
  21. Funkhouser, Edward, 1992. "Migration from Nicaragua: some recent evidence," World Development, Elsevier, vol. 20(8), pages 1209-1218, August.
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